Defined Contribution Benefits Model Is Attracting More Employers

Many employers are being prompted by upcoming implementation provisions of the Patient Protection and Affordable Care Act (ACA) to consider a transition from their current benefit models to a defined contribution (DC) model, according to recent research from Prudential. Under a DC benefits model, employees receive a lump sum amount for benefits from their employers. It is up to employees to decide how to allocate the funds between various types of benefits, such as health and dental insurance, life insurance, or accident insurance. The issue brief, entitled Group Benefits and the Defined Contribution Model, is based on Prudential’s Eighth Annual Study of Employee Benefits: Today & Beyond.

Employers primarily gave two reasons for changing to a DC model: first, to lower health care costs (59 percent), and second, to give employees greater choice in the way their benefits dollars are allocated (40 percent). Furthermore, 47 percent of employers in the study had already moved to a DC model or were implementing one. Sixty-two percent of employers that were likely to or were currently considering moving to an exchange in the marketplace believed they would adopt the DC model in the next two years.

“While employers struggle to fund increasing health care costs and more look to shift to DC plans, employees will realize a higher level of choice when it comes to benefits selection and aligning their benefit dollars with personal priorities,” said Jim Gemus, senior vice president of products at Prudential Group Insurance. “Carriers and brokers have an opportunity to ramp up employee awareness and educational efforts in order to help ensure employees fully appreciate the value of the voluntary benefits available to them.”

An employee survey was also part of the study, as was an insurance broker survey. Employees reported that, if they had $100 to use toward benefits, 75 percent would go toward health insurance, dental insurance, and vision coverage, with $56 going to health insurance specifically, $12 to dental insurance, and $7 to vision coverage. This would, of course, leave 25 percent of funds for such other coverage as life, disability, accident, critical illness, and accidental death and dismemberment insurance.

Forty-seven percent of insurance brokers surveyed thought that the increased implementation of DC plans would result in more dollars being allocated to the funding of health care, and 42 percent thought it would lead to more sales.

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